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Five Reasons You Can Still Profit from the Best Stock of 2016

It pays to be a tech investor with a solid system for crushing the market.

In fact, I just watched such a system pay off 265% for some of my paid-up members in a little less than a year.

Let me show you what I mean…

The system I'm talking about are the five rules for finding the best tech stocks – before they take off. These five filters – which you can find in Your Tech Wealth Blueprint – make it much easier to spot the winners from the losers.

chip-circuit-board-mother-board-chip-sti-eletterTake the case of the Silicon Valley leader I recommended to readers of my Nova-X Report on Feb. 26, 2016. At the time, this company was largely out of favor on Wall Street.

But just five days after my initial rec, this company broke out on heavy volume. It would go on to become the top-gaining tech stock of 2016.

Today, let's walk through the process we used to select this chip leader that crushed the market by 24-fold.

And if you're thinking of checking out now because this is "old news"… don't.

This isn't just a history lesson.

There's still plenty of giddy-up left in this horse…

Experience Matters

Now then, I did have a bit of an "unfair" advantage here over Wall Street. I'm a Silicon Valley insider who served as a senior advisor to a dozen tech startups.

And I knew this company well from both investment and technology perspectives.

That allowed me to see that the graphics processing units (GPUs) from NVIDIA Inc. (Nasdaq: NVDA) could quickly be extended well beyond the firm's original focus on video games.

In my gut, I knew that those powerful processors could be tweaked to address the high-bandwidth needs of virtual reality (VR) and artificial intelligence (AI) – two tech sectors that are now on fire.

While I trust my gut, I don't allow it or my emotions to lead me astray. That's why we always run stocks through our five-part system.

Let's a look at how NVIDIA stacked up…

Rule No. 1: Great Companies Have Great Operations

We always look for well-run firms with top-notch leaders.

Jen-Hsun Huang, cofounder and CEO at NVIDIA, is a rare breed in Silicon Valley. He's an engineer by training who, since 1993, has built his firm from a startup into a $56.4 billion market-cap powerhouse.

That puts him in the same league as Mark Zuckerberg of Facebook Inc. (Nasdaq: FB) and Larry Ellison of Oracle Corp. (NYSE: ORCL).

These are founder-CEOs who defied the odds by staying in charge instead of being replaced by professional managers as their firms became global icons.

A native of Taiwan, Huang was named to the U.S. Immigrant Entrepreneur Hall of Fame when it was established in 2012. He's also received the Dr. Morris Chang Exemplary Leadership Award from the Global Semiconductor Association as well as the Daniel J. Epstein Engineering Management Award from the University of Southern California.

Rule No. 2: Separate the Signal from the Noise

To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals.

As odd as it may sound now, Wall Street viewed NVIDIA as little more than a middle-of-the-pack chip firm known only for its gaming devices as recently as late 2015.

That means the Street failed to see that NVIDIA's advanced graphics processors could be used for everything from healthcare to Big Data to machine learning.

Plus, there's much more going on here than just technical excellence. The firm has strong fundamentals, boasting a 28% operating margin and a 32% return on equity.

Rule No. 3: Ride the Unstoppable Trends

We look for stocks in red-hot sectors because they offer the best chance for life-changing gains.

There's no question that NVIDIA had this base covered as well.

NVIDIA is now a leader in three of the hottest tech sectors today – AI, VR, and the connected car. In fact, last year the firm released a processor with 15 billion transistors invisible to the unaided eye that can be used for these cutting-edge tech platforms and more.

AI alone will be at least a $36.8 billion market by 2020, according to data from Tractica Research. The fields of VR and its related technology, augmented reality (AR), will become a $150 billion sector by 2020, the forecasters at Digi-Capital say. That same year, MarketsandMarkets predicts, the connected car market will be worth $46.7 billion.

So together, those three sectors alone will be worth $233 billion by the end of this decade.

Rule No. 4: Focus on Growth

Companies that have the strongest growth rates almost always offer the highest share-price returns.

Over the past three years, NVIDIA has averaged sales growth of 15%. However, earnings are growing at more than twice that rate, or an average of 37% over the period. And in the most recent quarter, earnings soared by 117%.

That growth stems from the fact that NVIDIA keeps adding new products or significantly upgrading current ones for new applications in fast-growing markets. This is why the firm was able to stack up 224% gains in 2016 – the broader stock market, crushing its competitors, and just about everyone else along the way.

Rule No. 5: Target Stocks That Can Double Your Money

This is where we look at the firm's earnings growth and see how long it will take the firm to double profits. By doing that, we can figure out how long it should take for the stock to roughly double.

Before recommending NVIDIA, I scoured the firm's product lineup and its financials in detail. I was convinced it could grow by at least 35% between late 2015 and 2018.

I then used what I call my Doubling Calculator. Mathematicians call it the Rule of 72. I divided the compound growth rate of 35 into the number 72 and found that the stock could double in slightly more than two years.

As we now know, my projections were far too conservative. And my readers ended up owning one of the the highest-returning stocks of 2016.

FutureCast

Now then, when a stock like this has run up so far, so fast, many investors wonder if it's too late to jump on board. That's not the case here – as long as you take the long view and set your expectations realistically.

You should also look for solid entry points.

Since I issued my sell alert to close NVIDIA out from the Nova-X Report portfolio on Feb. 10 so my members could maximize their amazing gains, the stock has sold off. And that's a good thing – for you – because it makes right now a good place to "Buy."

There's still at least 30% to 40% upside to come in the next year… and more to come in the years after that – provided you invest the way I suggest.

cowboy-splitWe want to enter once all the profit-takers have left.

And you can do so with the Cowboy Split – which we explored in-depth last week.

You buy a first tranche at market – say, 50% or 33.3% of your intended stake – and then enter a "lowball limit order" to buy more shares when they correct, generally after the stock is down 20%. You choose.

In other words, what for others would be a 20% stop-loss becomes a 20% discount for us.

We use this system regularly at Nova-X Report to rack up gains like the 265% we made on NVIDIA and many more just like it.

In this service, I do all the heavy lifting for you – market research, "Buy" and "Sell" orders… and everything in between.

And beyond tech stock picks like NVIDIA, Nova-X members and I explore "frontier" investments like fast-growing pre-IPO startups, foreign companies looking to "up-list" to American exchanges, and the emerging field of cannabis-based biotech treatments.

Take a look.

Follow me on Facebook and Twitter.

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The post Five Reasons You Can Still Profit from the Best Stock of 2016 appeared first on Strategic Tech Investor.

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About the Author

Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.

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